US consumer sentiment fell sharply in April, hitting its lowest level in nearly four years as the ongoing conflict with Iran drove inflation concerns and weighed on household outlook.
The University of Michigan’s Consumer Sentiment Index dropped to a final reading of 49.8 for the month, down from 53.3 in March.
While the figure was slightly higher than the preliminary estimate of 47.6, it remained the weakest since June 2022 and below economists’ expectations of 48.0 compiled by Reuters.
The decline reflects growing anxiety among consumers about the economic fallout from the war, particularly through rising fuel costs and broader price pressures.
Inflation fears intensify amid energy shocks
The conflict has disrupted shipping through the Strait of Hormuz, a critical global energy route, pushing up oil prices and increasing costs for commodities such as fertilizers, petrochemicals, and aluminum.
Iran effectively closed the Strait following the start of the war on February 28, exacerbating supply constraints.
Although the US and Iran have agreed to a temporary ceasefire, uncertainty remains high as no permanent resolution has been reached.
A US Navy blockade of Iranian ports also remains in place.
Consumers’ inflation expectations have shifted notably.
The survey showed one-year inflation expectations at 4.7% in April, compared with 3.8% in March. Longer-term expectations for the next five to ten years rose to 3.5%, the highest level since October.
Gasoline prices have been a key driver of these concerns, with prices hovering around $4 per gallon.
Nearly two-thirds of respondents expect fuel costs to rise further over the next year, the highest share since 2022.
Sentiment weakens despite modest recovery
Despite the overall decline, sentiment showed some improvement later in the month following a temporary easing in geopolitical tensions and a slight pullback in gasoline prices.
“After the two-week cease-fire was announced and gas prices softened a touch, sentiment recovered a modest portion of its early-month losses,” said Joanne Hsu, director of the Surveys of Consumers in a Reuters report.
However, the broader outlook remains fragile, with consumers continuing to react primarily to price pressures rather than geopolitical developments themselves.
“The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices,” Hsu said. “In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers.”
The survey period, which ran from March 24 to April 20, captured a time of heightened volatility in both energy markets and geopolitical conditions.
Spending holds up, but risks loom
While sentiment has weakened significantly, consumer spending has so far remained resilient.
Retail sales data released earlier in the week showed a broad-based increase in purchases, suggesting households are still supporting economic activity.
Some of this strength may be linked to temporary factors, including larger tax refunds and front-loading of purchases amid expectations of further price increases.
However, analysts caution that spending could soften in the coming months as elevated energy costs continue to strain household budgets.
Consumers’ perceptions of their financial situation have already deteriorated, with expectations for personal finances at their weakest level since May of last year.
The survey also showed declines in both the current conditions gauge, which fell to a four-month low, and the expectations index, which dropped to its lowest level in nearly a year.
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